Contractor loses case against retrospective tax claim

January 29th 2010

The case involved a Montpelier tax scheme which sought to circumvent IR35 rules by taking advantage of the IOM Double Taxation Treaty.

In the 2008 Finance Act, HMRC countered the use of the scheme by issuing retrospective legislation against certain offshore structures, and it was the retrospective nature of the legislation which was challenged in judicial review proceedings in the case of Huitson v HMRC, EWHC[2010] EWHC 97 (Admin).  

The challenge was on the basis that Parliament’s action was disproportionate and contrary to the European Convention of Human Rights -A1P1.

Kenneth Parker J concluded that the public policy of ensuring Double Taxation Treaties only prevented double taxation meant that the State’s response was not disproportionate. Therefore judicial review was refused.

This decision however may not prevent other challenges to retrospective legislation due to the judge’s strong emphasis on the public policy of maintaining the integrity of Double Taxation Treaties. Indeed it may help such challenges.